Pittsburgh International Airport hotel sale hinging on taxes

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The Hyatt Regency Hotel at Pittsburgh International Airport is under agreement to be sold to a Rhode Island company -- a transaction that could clear the way for the property to be put on the tax rolls for the first time in its 13-year existence.

MHF Properties IV LLC, an affiliate of Magna Hospitality Group of Warwick, R.I., has agreed to buy the 336-room hotel from the Dauphin County General Authority for $44.5 million.

The Dauphin authority has owned the hotel since it opened in 2000, but its reign has been marred by its inability to make payments in lieu of taxes on the building. The property is tax exempt because the Dauphin authority is a quasi-governmental entity.

To address that, the authority was to pay up to $767,040 a year under an agreement with Allegheny County, Findlay and the West Allegheny School District to compensate for the loss of property tax revenue. But it has not paid a dime -- and the tab now stands at nearly $9.2 million. Whether the three taxing bodies will recover any of that money in the sale remains to be seen.

David Shannon, vice chairman of the Dauphin authority board, said any payments would have to be negotiated between MHF Properties and the taxing bodies as part of the sale.

He said the authority, as in the past, does not have the money to make the payments. Under its 1998 deal with the then-Allegheny County commissioners to build the hotel, a host of other bills must be paid before the taxing bodies receive anything.

Those payments include principal and interest installments on the debt, money set aside for furniture and other equipment, hotel operating expenses, and even "reasonable" administrative expenses generated by the Dauphin authority.

Mr. Shannon said the big drag on the property has been the debt. The authority still owes $54.9 million on the bonds used to finance the hotel's construction. It is technically in default on the bonds because it has been forced to dip into reserves the last two years to make the payments.

"The hotel costs more to build than it's capable of generating, even though it's generating more revenues than its counterparts in the area," he said.

He added it would "take almost an act of God to turn the business model around" to the point that it would churn out enough money to get to the point of being able to make payments in lieu of taxes.

As part of the deal to sell the hotel, bondholders have agreed to accept $44.5 million as full repayment, meaning that the authority will be able walk away from the property owing nothing.

At the same time, negotiations are taking place between the buyer and the taxing bodies to get the hotel on the tax rolls and to try to secure some of the payments in lieu of taxes that the authority has not been able to make.

Attorneys for the county, Findlay and West Allegheny could not be reached for comment. Robert A. Indeglia Jr., managing member of MHF Properties, did not return a phone call.

Brad Korinski, chief legal counsel for county Controller Chelsa Wagner, said it does not appear as if the agreement on the payment in lieu of taxes automatically transfers to a new buyer.

"You would hope that the county would aggressively pursue a new PILOT agreement or seek to return the hotel to the tax rolls," he said. "A hotel at the airport should be producing tax revenues like almost all other hotels in Allegheny County, including its competitors half a mile down the road."

The Dauphin authority hopes to close on the sale by the end of the year, assuming the current negotiations bear fruit, Mr. Shannon said. The sales accord allows MHF Properties to back out of the deal if it is unable to get agreements involving tax assessments, payments in lieu of taxes or a ground lease under which it would pay rent to the county's airport authority. The county owns the land on which the hotel is built.

Mr. Shannon said he did not know if the hotel would remain a Hyatt. But despite the Dauphin authority's problems in meeting its tax-related payments, the hotel itself has performed well, he said.

MHF-affiliate Magna, founded in 1998, is a privately held hotel real estate investment firm dedicated to hospitality investment, development and management, according to its website.

It owns or operates 19 hotels with more than 3,800 rooms and has another five hotels totaling 700 rooms under development. It is associated with major hotel brands, including Hilton, Marriott, Starwood and Hyatt.